SPY Divergence Indicator

🧠 Foxchase Opt/Spy Divergence + z-Score Framework (ThinkorSwim)

This ThinkorSwim indicator suite analyzes option behavior directly — not SPY itself — to detect when SPY price diverges from its option premium structure. It reveals early reversals and continuation signals driven by dealer hedging and volatility repricing.

⸻

🔍 What It Detects • Opt/Spy Divergence — SPY Higher Low + Option Lower Low (Bullish) or SPY Higher High + Option Lower High (Bearish) • Extrinsic Divergence (EX) — SPY Higher Low + Call Extrinsic Lower Low → signals IV compression and potential dealer unwind • z-Score + Extrinsic Slope (New) — identifies IV compression vs expansion, showing when option premium is being repriced rather than hedged

⸻

⚙️ Highlights • Designed for slightly OTM 0DTE SPY call or put charts (apply directly to the option chart) • Bid/Ask mid-price used for clean extrinsic calculations • Adaptive high/low tolerance to detect near-equal pivots • Smart timing: waits for confirmed pivots, reducing false signals • Simple visuals: Green ↑ for Bullish Divergences, Red ↓ for Bearish Divergences • Now includes z-Score normalization to track volatility regime and timing (compression vs expansion)

⸻

📈 How to Use 1. Load the study on the SPY option chart, not SPY itself. 2. Keep underlying = "SPY". 3. Watch for:  • Green “BULL DIV (EX)” when extrinsic compresses at a higher SPY low (bullish setup)  • Red “BEAR DIV (EX)” when extrinsic compresses at a lower SPY high (bearish setup)